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Short-Duration High-Yield Bonds: An Attractive Solution for a Low-Yield, Rising-Rate Environment
With Treasury yields at historically low yields, investors need to look elsewhere for the income they need. Eric Scholl and Tom Saake, portfolio managers at Allianz Global Investors, discuss why high-quality short-duration high-yield bonds may be a good solution for todays low yield environment and can provide protection against rising rates in the future.
Inflated Expectations?
Investors should prepare themselves for higher long-term inflation because the market may be ignoring it, a mistake that could come back to haunt. On the heels of encouraging economic data, central bankers are projecting only modest price increases for goods and services over the next 10 years. But history tells us that an inflation spike is inevitable when governments print money so aggressively. As such, investors with long-term time horizons should have substantial exposure to inflation-hedging asset classes. Now, more than ever, real returns matter.
The Fed's New Math and What It Means
Central bankers are scrapping the use of a timeline to determine how long to keep interest rates at record lows. Rather, they will tie rate increases to specific unemployment and inflation targets. There is definitely more clarity around the Fed's decision making now than ever. The question is, will such "outcome targeting" really change the outcome? In looking at the last three economic recoveries, the average time it took for unemployment to fall from 7.7%, our current level, to 6.5%, was 26.6 months.
"QE" Stands for Quality Employment
The Fed's expansive and open-ended quantitative easing program centers on building up a depleted workforce and quickening the pace of the housing recovery, but higher inflation and tight credit could play the role of spoiler. Buying mortgage-backed securities and pushing interest rates lower is designed to boost the housing sector, help loosen lending standards, stimulate corporate spending and increase foreign demand for U.S. products. This is a tall order and there are many "ifs" in this scenario, but the flexibility and breadth of QE3 increases the likelihood of its effectiveness.
When Bad Is Good
Faith in the Fed is growing more devout. Despite another disappointing jobs report, stocks drifted higher Friday to close out a strong week for the major averages as investors pinned their hopes to an imminent policy move from central bankers. It is becoming more apparent every day that the U.S. economy is sputtering. While housing appears to have stabilized, jobs and manufacturing are areas of concern.
Mixed Signals Color Downgrade Anniversary
Two trouble spots for the economy, the job market and housing, generated some good vibes amid gloom over no action from central banks and manufacturing weakness. Unfortunately, it wasnt enough to push the stock market into positive territory for the week. But looking through a longer-term lens, stocks have been resilient since last year's debt-ceiling drama and Standard & Poors downgrade of U.S. debt.
Housing, Profits Shine Amid Rain in Spain
Despite continued crisis in Europes periphery pressuring stocks, a rebound in housing, surprisingly strong profits and a spike in M&A activity may point to a healthier U.S. economy. And institutional equity managers are more optimistic on the stock market. However, with employment still showing weakness and the euro-zone crisis remaining a critical concern, one has to wonder why these institutional investors are becoming more bullish. Heres some insight into why they may be keeping the faith.
Let's Twist Again
It looks like the Fed is finally facing up to the facts. The U.S. economic recovery has stalled and policymakers have realized that they need to step in. Despite a favorable election outcome in Greece, a renewed commitment to austerity and staying in the euro zone, the Fed has lowered its outlook for growth and extended Operation Twist.
The Economy Cannot Live on the Fed Alone
The road to economic recovery cannot be paved by monetary policy alone. It must be accompanied by greater access to credit. Rates can be kept low for years, but without looser credit standards they cannot be truly potent and stimulative. In other words, banks will need to do their part. Offering capital to a larger number of small businesses and enabling more homeowners to refinance their mortgages, or even purchase new homes, is a key ingredient that will help keep us out of a liquidity trap.
Waiting for Clarity and Action in the Euro Zone
Poor economic data and the collapse of a Spanish bank have kept the pressure on Europe and the financial markets, but we believe Greece will stay in the euro and the European Union. U.S. investors should know that Germany is pro-Europe and recognizes the need for growth, not just fiscal austerity. It is also important to point out that ECB policy has been supportive, but they do not want to do the job of the government. U.S. investors should look to high-quality dividend-paying stocks in this uncertain environment...
Job Drought, Greece Wipe Out 2012 Gains
The U.S. employment report dominated headlines and put investors on watch for further threats to the recovery. In Europe, Ireland's adoption of the fiscal pact was not enough to counter worries about the escalating banking problems in Spain. But as long as the U.S. savings rate, which currently stands at 3.4%, continues to decline, the downside risk to U.S. economic growth is limited. In addition, the substantial drop in the price of oil should also help boost the economy. We maintain the view that the United States will achieve 2% economic growth this year.
Europe's Woes Flood Wall Street - But Not the Economy
The rising tide of contagion has reached our shores. After months of buildup, Europes debt crisis has finally wreaked havoc on U.S. stocks, as a wave of anxiety prompted a major selloff on Wall Street. Investors fears are coming to fruition and we are once again experiencing a spring swoon. But the turmoil overseas has yet to impact the U.S. economy. In fact, the FOMC highlighted a bright spot that may have been overlooked: banks are loosening credit standards. While volatility will continue in the near-term, dividend-paying stocks may help steer portfolios until we see calmer seas.
A Taste of Reality
There was nothing fun loving about the spoonful of bad news overseas last week that left investors with a bad taste in their mouths. New wrinkles to Europes debt crisis and slower growth in key emerging markets have shaken the stock market and put the U.S. recovery in doubt. The recovery may be weakening and there is a good chance we will see more negative surprises in the near term. This challenging environment calls for investors to be selective in choosing risk assets. Still, shunning stocks altogether could undermine long-term financial goals and, ultimately, is a recipe for disaster.
The Dividend Tax Debate: Soaking the Rich or Raining on the Recovery?
Taxes, one of the few certainties in life, have been the source of a lot of uncertainty this election year. President Obamas proposed budget, if enacted, would raise the tax rate on corporate dividends for upper-income individuals to 39.6% from 15%. His administration projects that it would raise over $200 billion over the next decade. Critics say it would prompt companies to cut dividends and horde cash, which could have a debilitating effect on the economy. It could also hurt aging retirement savers, who receive 75% of dividend payouts. Get the latest on the politics behind the policy.
A Seesaw of Surprises
It was a week full of surprisesboth good and bad. Corporate profits in the United States have come in stronger than expected. U.S. consumers are spending more money than anticipated. But continued housing weakness, higher-than-expected jobless claims and deeper disruptions in Europes debt crisis have raised some eyebrows. Adding to uncertainty are the events in the Netherlandsone of only a few AAA-rated lenders in Europeas its government rejected a fiscal austerity plan and now is in jeopardy of collapsing. Here is how to put such a mixed bag in perspective.
Can Foreign Trade Cure America's Ills?
A narrower international trade gap could be the elixir that helps speed the recovery. A shrinking trade deficit suggests the economy may have grown faster than expected in the first quarter. The news prompted the New York Feds William Dudley to boost his GDP estimate. While headlines on employment, Europes debt issues and Chinas slower-than-expected growth have hurt stocks, they are likely to cause only short-term market disruptions. The correlation between international trade and corporate profitability point to improved earnings and economic growth over the longer stretch, however.
Jobs 'Stunner' Not Much of a Surprise
The number of new jobs created last month was downright disappointing, but maybe it should not have come as such a surprise. Job growth and improvements in the unemployment rate had been moving at a faster clip than modest economic expansion could support, a phenomenon that seemed to defy history and economic theory. Okun's Law suggests that the job market will be depressed for some time because GDP growth has been less than robust. The pullback we are seeing is not cause for alarm, however. The economy is growing and jobs are being created, but there will be fits and starts along the way.
The Manufacturing Renaissance
While unemployment remains elevated, the U.S. manufacturing sector has quietly staged a dramatic turnaround, one that could be a pillar of support for the economic recovery. Jobs shipped overseas decades ago are now returning home. Productivity has grown significantly thanks to advances in technology and favorable exchange rates with Americas trading partners. The cost of labor per output in the United States has decreased. Manufacturing in this country may never return to its golden years, but it is certainly experiencing a rebirth of sorts.
A Tale of Two Tech Sectors
March is a fitting time to talk about tech because it is the month when investors witnessed the infamous noise heard round the world: the bursting of the dot-com bubble 12 years ago. And while their ears might still be ringing from the blast, when it comes to tech stocks, a little perspective goes a long way. In 1999, irrationally bullish sentiment drove tech valuations to lofty heights with little regard for actual profits. Today, the tech sector is among the most attractive and fundamentally sound areas of the economy.
Are the Jobless a Coiled Spring?
Putting pink-slipped workers back on the job could provide a big boost to the U.S. economy. But while the recent steady job growth we have seen has fueled optimism that the pace of the recovery is quickening, market watchers may be ignoring a red flag. There is still a high percentage of unemployed people who have been out of the work force for 27 weeks or more. Yet repressed spending for such a prolonged period could be a coiled spring that could deploy with some force as they return to the work force. Why unemployment may be a short-term hurdle and a long-term catalyst for the economy.
The Labors of Hercules Were Never This Tough
Theres no shortage of insight on the ever-expanding debt drama in Europe. Despite the deluge of information, there are still a few key points to consider. Banks and hedge funds could file lawsuits against Greeces government. Protection against the ISDA declaring a default on Greeces debt could prove to be inadequate. This could mean that things may be worse than we imagine. Markets have rallied this year on positive sentiment that Greeces default has been contained. Are we being too complacent? Still, with solutions being drafted, now might be a good time to buy European equities.
Fed Takes 'Goldilocks' Approach to Tepid Economy
Ben Bernanke's not-too-hot, but not-too-cold outlook spells low rates through 2014, but there's no QE3 in sight. He cautioned that while the unemployment rate has decreased faster than the Fed anticipated over the last year, the job market remains far from normal. Despite a more optimistic consumer outlook, investors have largely stayed on the sidelines. This is where the Fed's Goldilocks approach to monetary policy should prove beneficial.This level of certainty highlights certain truths that will help investors make better decisions. Investors will be punished for being savers.
The Big Picture Through a Small-Cap Lens
Things are looking up for investors as a recovery in the job market and a rosier consumer outlook have helped fuel optimism. But spiking oil prices could spoil the party in the short run. A look at small-cap stocks may offer perspective. The rally, Oct. 4 - Feb. 23, has seen the Russell 2000 jump 37%, well ahead of both the Russell Mid-Cap and the Russell 1000 indices. The small-cap rally may be headed for a hiccup, however, one foreshadowed by last weeks slight decline in the Russell 2000. Still many portfolios can benefit from a long-term allocation to small-cap and even micro-cap stocks.
9 Key Themes To Impact Returns in 2012
A breakdown of the key drivers of market performance in 2012 including corporate profits, pricing/inflation, interest rates, economic activity, international performance, the dollar, valuations, technical/sentiment and fiscal policy. The U.S. economy is likely to grow 5%
Good News Cant Keep a Lid on Investor Fear
The outlook for the stock market keeps getting brighter, but investors are still letting fear cloud their judgment. In the United States, the jobs picture a rather bleak scenario less than a year ago has improved substantially. The euro-zone debt crisis has also improved. We havent seen any real contagion from Greece, as evidenced by sovereign debt yields. And despite prominent investors such as Warren Buffett and Jeremy Grantham favoring stocks over bonds, a lot more money flowed into bond funds in January. This disconnect reveals a continued tug-of-war between fear and fundamentals.
What a Difference 3 Years Make
Three years removed from the Styxian depths of the financial crisis, investors are now in much better shape. Back in 1980, when Ronald Reagan was running for president, he struck a chord with the voting populace by asking the seminal question, Are you better off now than you were four years ago? Much of the electorate ran through a mental checklist and decided that they were worse off. As a result, voters pulled the proverbial ripcord, ousted the incumbent and Reagan was elected our 40th president. Investors should be asking themselves a similar question today.
Innovation Suggests Vibrant Future for Tech Sector Innovation Innovation
We are relatively positive on technology in 2012 for a variety of reasons. In mid-2011, large-cap tech companies valuations began to stabilizemany at record lows. A number of tech companies have also built stable businesses since the early-2000 tech decline, and more have started paying dividends. Moreover, tech companies generally do well in slow-growth periods because they offer cost savings, and particularly innovative companies can get very good traction in this environment. Indeed, Facebook's IPO is likely to usher in a new era of online advertising.
Time to Get in the Game
Recent data on job growth, unemployment and manufacturing activity offer compelling reasons for investors to get off the sidelines. Private job growth continued with a gain of 257,000 jobs, signaling a very constructive trend weve seen for a number of months. Public sector job shrinkage also continued and should be a welcome sign given the need to reduce government debt. The unemployment rate fell to 8.3% in January. Arguably, investors should be willing to take on more risk when they feel their employment is more secure. And the feeling of greater job security might soon be on the horizon.
Fed Rings Dinner Bell for Equities
The Fed's decision to keep short-term rates at historical lows and to provide greater visibility on monetary policy is likely to beckon stock investors to take on more risk. Plus, what you may have missed in the GDP report. Investors hungry for yield may have gotten the sign they needed to increase stock portions of their portfolios. On Jan. 25, after a Federal Open Market Committee meeting, Fed Chairman Ben Bernanke surprised the capital markets by announcing that the central bank planned to keep short-term interest rates historically low into late 2014 and possibly beyond.
Results 151–200
of 223 found.